Tax preparers are chewing their pencils as the U.S. Internal Revenue Service gets ready to impose the first comprehensive program of fees and rules on the industry’s 730,000 practitioners.
Some fear the IRS campaign against tax fraud could squeeze out small, independent businesses and allow large competitors such as H&R Block and Jackson Hewitt Tax Service to capture market share.
The IRS, which plans to finalize the new fees in coming months, recently said it was open to ways to mitigate costs.
To get certified, preparers will need to register and pass a competency test. Some will need to be fingerprinted, pass a background check with the FBI and take continuing education classes.
The IRS estimates the licensing fee for each tax preparer at between $250 and $275, but H&R Block expects the cost will be more than $400, including state fees and its own background-check expenses.
The IRS fees are “a touchy and sensitive topic,” said Mark Steber, chief tax officer at Parsippany, N.J.-based Jackson Hewitt. The fees “do seem large, and they are large.”
Practitioners say the new fees, some or which are still in flux, will trickle down to Americans who pay for help with their taxes. Faced with a complex tax code, more than half of all U.S. taxpayers filed a return last year with the help of a preparer, according to the Government Accountability Office.
The tax-preparation business has traditionally been a free-wheeling industry. Only California and Oregon have laws regulating it. In the rest of the country, anyone can hang out a shingle and fill out tax returns.
The IRS wants to weed out illicit tax preparers who open for business in tax season and then disappear before they can be charged.
In June 2009, IRS Commissioner Douglas H. Shulman started an overhaul of the tax-preparer system.
As the proposed rules stand now, fees would hit about 450,000 preparers particularly hard — those lacking professional credentials as lawyers or certified public accountants and those registered with the IRS as preparation supervisors.
Fees and competency tests could drive out honest preparers along with swindlers, said Chuck McCabe, chief executive of the Income Tax School in Richmond.
“The fees definitely do pose a barrier to entry,” said McCabe, who noted that tax preparation has been a valuable job opportunity for many older people and women with young children looking for part-time work.
Meanwhile, analysts say big firms might pay for their staffs’ certifications to retain experienced employees and are poised to gain a competitive edge over small, independent preparers.
Jackson Hewitt preparers filed 2.6 million retail U.S. tax returns for the 2010 year, while H&R Block handled 14.7 million, or about 11 percent of the total. H&R Block said it would cost about $8 million to get roughly 100,000 company employees certified. Its 1,733 corporate franchises will also have to pay fees.
David Williams, director of the agency’s return preparer office, said the costs bring the preparation business in line with the professional needs of the work.
“In virtually every service profession, there are basic, minimum standards for suitability,” said Williams, who led the regulatory overhaul.
Most barbers and hair stylists must pass some suitability test. “You will see those licenses on the wall,” he said, while tax preparers, who face no such requirements in most states, have access to an individual’s “most intimate financial information.”